Time to talk cold, hard coin.
If your mind draws a big fat blank when it comes to complicated money matters, it’s time to smarten up and get your head around it once and for all. Financial educator Jody Fenton sorts out all your biggest financial FAQs – from credit cards, to CPF contributions. OK, let’s crunch some numbers.
Q Do you recommend that I make voluntary contributions to my CPF?
A : You can make voluntary CPF contributions to build up your retirement savings – either through tax deductible contributions to just your Medisave account, or non-tax deductible contributions to all three CPF accounts (Ordinary, Special and Medisave). But there’s a limit to how much you can contribute – for 2015, the sum total of your voluntary and mandatory contributions should not exceed $31,450.
So once all your bills and debts are settled, is it worth stashing away extra cash into your CPF now? “It can be a good way to hide money for the future, but you can’t access the funds until you’re of retirement age,” says Fenton. If you don’t have insurance, you might be better off investing in a health insurance plan that will cover any medical expenses you might incur, or a life insurance policy that gives you some financial breathing space if you suddenly need to take an extended amount of time off for health reasons. Otherwise, you might prefer to set up a high interest savings account for emergencies, or save for a house deposit instead. This way, you won’t be locking away funds that can’t be accessed until you turn 55.
Q Which credit card should I pay off first – the one with the lowest balance or the highest interest?
A : Credit card companies make an absolute killing with the interest they charge on cards, so paying off the card with the highest interest first will save you extra cash. But when clearing a high balance, it can be hard to stay focused. “If you can pay off the smaller bill within a month or two, do that first, so one debt is completely wiped out,” suggests Fenton. Your new debtslaying abilities can also give you the motivation you need to keep going until you’re debt-free!
Q Is it worth getting a personal loan to pay off my credit card debts?
A : You could consider a personal loan if you aren’t making a dent in your bills, but it lacks flexibility. “You’re usually locked into the interest rate for the full term of the loan, so there’s often no option of paying it off earlier,” warns Fenton. Alternatively, most banks offer a balance transfer, which involves shifting the debt to a new credit card, usually with a special low interest rate for the first six or 12 months. This could save you a fair bit of money.
Q Should I make voluntary repayments towards my student loan?
A : Making voluntary repayments can be a good idea, especially if your debt is small. But if you have a personal loan or credit card debt, focus on those first as they’ll cost you more in interest.